Construction

Published on February 15th, 2017

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Kamarajar Port Picks Axis Bank to Raise 100 Million Dollar Loan

Kamarajar Port Ltd, the only union government-owned port that is run as a company, will raise $100 million from Axis Bank Ltd to part-fund a Rs 1,220 crore expansion of the port located at Ennore near Chennai.

Kamarajar Port Chairman M A Bhaskarachar told India Tradeways that the port has picked Axis Bank for raising the dollar loan after it quoted the lowest interest rate of 3.15% from among two other lenders – Kotak Mahindra Bank and HDFC Bank – in a tender.

The all-inclusive rate quotation of about 3.15% (six months LIBOR plus 195 basis points) submitted by Axis Bank, India’s third largest private lender, for the loan was approved by the Board of Kamarajar Port in January, he said.

The loan has a tenure of five years including a moratorium period of one year from the date of fist disbursement.

Kamarajar will utilise the loan to construct a new coal loading berth for TANGEDCO, a new general cargo berth, a new automobile export terminal with a capacity to handle 300,000 cars as well as for deepening the depth to handle bigger ships.

Kamarajar has become the second union government port to raise a dollar loan in the last few months after shipping minister Nitin Gadkari urged them to go for low-cost foreign currency borrowings by leveraging their dollar denominated foreign currency earnings which provided a natural hedge to the ports. This would substantially eliminate the requirement of hedging the foreign exchange risk and would reduce the cost of borrowing.

Vessel-related charges or so-called marine charges such as port dues, berth hire and pilotage are paid by ships calling at a port. Vessel-related charges for foreign-going vessels are denominated in dollars but collected in rupees after applying the prevailing exchange rate, according to a practice followed since 1991.

Whereas, cargo-related charges at ports such as wharfage, crane hire, storage, warehouse, demurrage and estate rentals are denominated and collected in rupees.

Gadkari argued that the dozen ports can use their dollar earnings to borrow money at cheaper rates from overseas instead of high cost rupee loans with interest rates of 12-14% from the domestic market.

In August 2016, Jawaharlal Nehru Port Trust, which runs India’s biggest container port near Mumbai, signed a deal with a consortium of State Bank of India and Development Bank of Singapore to raise a dollar loan of $400 million to help fund a road widening project linking the port for faster evacuation of cargo.

Like Kamarajar, the dollar loan of J N Port carried an interest rate of about 3.15%.

Port projects, including connectivity projects, are critical to developing cargo handling capacity. With the thrust on port led development under the Sagarmala programme, improving viability of projects is critical. One of the primary factors that impacts viability is the interest rate on borrowings to fund projects. While ports have surplus funds, they also need to borrow to achieve a quantum jump in the investment, Gadkari said.

Dollar loans opens-up one more avenue for so-called major ports or those owned by the union- government to raise funds by accessing international markets for their requirements, he added.

With the exception of Kamarajar, all the other 11 union government ports are run as trusts. These 12 ports load about 53% of India’s external trade by volumes moved by sea route every year.

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